© Economia civile Rethinking regulation: international banks in Asian emerging markets

Financial systems in Asian emerging market economies are in a state of transition. Through processes that began before the 1997 financial crisis in some Southeast Asian countries and gained momentum there and elsewhere after the crisis, countries in the region have opted for financial liberalisation to differing degrees. This state of transition has influenced assessments of the impact of the 2008 global crisis on the financial systems of these countries, especially the banking system in the region. If the focus is on the remnants of the pre-existing regulatory framework, the better performance of these banks during the crisis as opposed to those in other emerging markets can be attributed to the regulatory framework. If the focus is on the change that occurred after 1997, their resilience could be attributed to regulatory reform. One set of policies of relevance here is that relating to the presence of foreign banks in these markets, which is the concern of this paper. In assessments of alternative forms of financial regulation that the 2008 financial crisis has prompted, systems prevalent in Asian economies have often been referred to favourably (Reddy, 2011; Standard & Poor’s, 2008). The obvious reason is the relative resilience shown by these countries in the aftermath of the crisis. Initially, driven by the need to cover losses or meet commitments at home, foreign financial firms withdrew capital from Asian emerging markets, resulting in the threat of a liquidity squeeze and/or a currency crisis. But these economies withstood that shock and even bounced back, paving the way for a retur